Health System Pilots: A Health Tech Founder’s Guide

by Joe Ferrara

Imagine you've poured your heart and soul into developing a groundbreaking health tech solution. You're confident it can revolutionize patient care and streamline health systems' operations. There's just one catch: potential customers want proof. 

"Show us it works in the real world," they say. But how can you demonstrate real-world efficacy without your first customer? It's a classic catch-22.

Health systems, notoriously risk-averse, are understandably hesitant to commit to an untested solution. Yet without that initial leap of faith from a customer, how can you prove your worth?

This chicken-or-egg conundrum has stymied many promising health tech startups. But there's a solution that bridges this gap: health system pilots.

The "Try, Test, Buy, and Even Leave" Philosophy

Earlier this year, I came across an interview with Jason Lemkin, a renowned SaaS expert, where he suggested that in the early days of your company you should aim to make it as easy as possible for your customers to try, test, buy, and even leave. This philosophy seems especially relevant for health tech startups looking to break into the risk-averse healthcare market given the long sales cycles.

Let's break down this approach:

  • Try: Pilots offer health systems a low-risk opportunity to try your solution in a controlled environment.
  • Test: During the pilot, health systems can thoroughly vet your product's functionality, integration capabilities, and impact on their workflows.
  • Buy: A successful pilot paves the way for a seamless transition to a paid partnership.
  • Leave: Counterintuitively, making it easy for customers to leave can actually increase their willingness to try your solution in the first place.

Why Pilots Matter

In addition to making it easier for prospective customers to try your digital health solution, pilots are crucial for three reasons:

  1. Rapid testing and feedback: Pilots allow you to test ideas in real-world settings and gather valuable insights. This is also an opportunity to make changes, identify opportunity opportunities for customization, and fix anything that is not working properly.
  2. Building case studies: Successful pilots provide compelling evidence for your product. When prospective customers inevitably ask, "Who else is using your solution?", you'll have concrete examples to share.
  3. Establishing long-term relationships: By delivering exceptional service during pilots, you increase the chances of converting to paid partnerships. Showing customers that you value their feedback and are willing to incorporate their ideas makes it more likely that they'll want to work with you in the future.

“Free-to-Fee” Approach

While offering a "freemium" version of your product will help you get your foot in the door, it won't pay the bills. To increase the likelihood of converting unpaid pilots into long-term, paid partnerships, consider implementing what I call the "Free-to-Fee" approach. 

Set a timeline (e.g., 6 months) with automatic conversion to a paid partnership unless terminated by either party. Consider offering your service at a reduced rate for the pilot period, automatically increasing after the initial phase. This provides revenue during the pilot, allows health systems to test at low cost, and creates a smooth transition to full rates.

The Importance of Flexibility

In one engagement, a prospective customer was interested in our solution but wanted the ability to cancel within the first 45 days of the pilot for any reason with only five days' notice. Initially, we were hesitant - we had invested significant resources in customizing our product for their needs and didn't want to risk them walking away.

The customer had good reasons to be skeptical — we were the new kid in town, and they'd always worked with another, more established vendor. This vendor had exhibited poor customer service and had serious challenges meeting their needs, but it was nevertheless a known commodity.

Recognizing the customer's concerns came from a place of caution, we agreed to the 45-day cancellation clause and offered an agreement that automatically converted to a three-year term at the conclusion of the pilot (so long as either party did not terminate the contract within the introductory period). This approach gave the customer the reassurance they needed while also creating a seamless path to a long-term partnership.

The result? Not only did the customer not cancel after 45 days, but they also became one of our strongest advocates, leading to several referrals. By being flexible and understanding our customers' perspectives, we turned a potential obstacle into a significant opportunity.

7 Keys to Success

1. Be easy to work with: Prompt communication and problem-solving are crucial for building trust. Ask yourself, "Am I being easy to work with?". In fact, pin this up on your bulletin board, so you see it every day.

2. Identify champions: Identify the people who will use your product daily. If your software addresses their pain points, they are the ones who will be in your corner and help move discussions along with the health system. While aiming for the C-suite is tempting, your first champions are more likely to come from the frontlines.

3. Respect health system culture: Remember that health systems are typically risk-averse and have well-established contracting processes. Try to align with their processes where possible. To get the full picture on this point, please refer to Rachel Tornheim's presentation in Digital Health Insider's webinar "Innovating with AI in Healthcare Systems".

4. Communicate effectively: Develop a robust communication plan, including weekly progress reports and less frequent updates to senior stakeholders.

5. Leverage your champions: When moving to broader implementation, be sure to keep your champions engaged. These folks can help you roll out your solution to the health system and assist in training or guiding others where appropriate. 

6. Consider scalability: As you move to broad implementation, be sure to have the resources on hand to help your customer during the transition. Often pilots start at just one or two facilities where it is easier to maintain strong oversight. Consider the support that your company will need to provide when scaling to cover multiple sites.

7. Have a plan in case something goes wrong: One of the exercises that I’ve seen successful companies do is to consider how they will respond if something goes wrong and how far they are willing to go to make things right by the customer. 

Ready to turn your health tech innovation into reality? Start building your pilot strategy today. Whether you're approaching your first health system or looking to improve your pilot success rate, the principles in this guide can help you navigate the path from proof-of-concept to lasting partnership.

Have experience running health system pilots? Share your insights in the comments below – let's learn from each other and build better healthcare solutions together.